Game plan for an encore in 2014

Feb 14, 2014 @ 12:00 am

Runtime: 9:24

In part two of the interview with Ed Hyman of ISI Group and Bill Miller of Legg Mason Opportunity Trust, they forecast where they see big wins in the market this year following last year's winning streak.

Video Transcript

This week on WealthTrack Part 2 of our exclusive interview
with two financial champions after last year's winning performance. What
are they doing for an encore in 2014. Wall Street's
recognized "King of Economist" Ed Hyman joins the Investment Superstar
Bill Miller to discuss their game plan next on Consuelo
Mack, WealthTrack. So what's your analysis now of China, which
a lot of people are worried about? -We're pretty grumpy
on China. The economy is doing well by any Western
standards. -Uh-hmm. -It's going 7 percent. The economy has doubled
in the past seven years. So, 7 percent a day
is as same as 14 percent seven years ago in
terms of the basis effect on growth. But we've tried
to move on. The three areas I wanted to mention
to, first, I've mentioned last year I thought it was
a free pass on the US market 'cause of the
Fed doing queuing. -Right. -This year is Japan. The Japanese
markets have 50 percent last year. And I think Japan
is definitely gonna increase their balance sheet a trillion dollars.
The second space I like is a synchronized global economy,
as I mentioned last show. And I think Citibank is
a way to play that. And the third space I
like-- -Really big positions Citi by the way, as well.
-Oh, you do? Uh-hmm. And they offer you any trust
fund? -Yes. -Uh-huh. -And like our sister to Apple. But
I like the technology sector and I think Amazon is
a very exciting play on that. So those are the
three areas that I'm looking for right now. -Yeah. So
let me dive a little bit deeper into each one
of those. So, let me ask you about China. When
you say you're grumpy on China, what does that mean?
-We're just not sure if the transparency is there and
what the leadership wants to do and there's been a
transition in the leadership. -Right. -And they're trying to feel
what their new priorities are, growth versus environmental issues, growth
versus income disparities, growth versus getting the mix between consumption
and investment change-around. So we're just sort of waiting on
those for now and I'm more interested in the US
and in Japan and in the companies that benefit from
a synchronized global expansion. China is gonna grow. -Right. -Japan's
gonna grow. US is gonna grow. Europe's gonna grow and
it's been a while since you could look at around
the world and see that every place is gonna be
green, be a little bit of a plus. -Right. So--
and, forgive me for doing this but I know that
China has been such a focus of conversation and consternation
that, you know, for a couple of years ago only,
people were talking about China as being the driver of
global growth and that it was surpassing the US, and
you know, it was-- you know, certainly economies surpassed Japan
a couple of years ago and it's the GDP and
contribution to world growth. So what's China's, you know, role
now as in global growth? -It's still-- as I mentioned,
it's doubled in the past seven years. -Right. -So when
it grows 7 percent, it's like growing 14 percent back
then in terms of, you know, the amount of-- I
don't know where it uses or energy it uses or
cotton it uses. So it's still a major force but
we're waiting for this sort of clarity in terms of
what their goals are and also to say the stock
market acts like debt and so-- -Right. -I'm just sort
of waiting until it looks a little clearer and it
contrast, Japan looks like a very clear shot. -So, let--
you know, so let's-- you said you get a free
pass with Japan. So what kind of a free pass
are we getting? -Is that they're gonna-- they're gonna increase
their balance sheet by trillion dollars back what we did
last year. -The Bank of Japan. -The Bank of Japan.
-Right. -But their stock market is a quarter the size
of the US. -Uh-hmm. -So they're really, they're really putting
it on. And the market is acting pretty well and
the Yen is weakening like today it was weaker, which
means it's more attractive to buy their goods. -Right. -So
that looks like a good shot. -So from an investment
point of view, I mean should I be buying, you
know, a Japan fund or an ETF, you know-- -Yes.
And you have to be short the Yen and long
the stock market. -And this-- you think that this is,
the [unk] transformation has legs and that this is not
just a short-term phenomenon. -Like Bill here always looking for
the easier shot and the easy shot is that the
Bank of Japan will give [unk] the financial cover to
try and get these third-arrow initiatives in place. And if
the economy weakens in the spring when they increase the
VAT, then he'll-- the Bank of Japan will accelerate their
buying. It's a little bit like the government shutdown here
in 13, when it kinda looks like it might weaken
the Fed kept doing queue. So I'm really focused more
on what the Bank of Japan is doing and its
impact in the stock market but-- -I see-- -And then
I'll see how the [unk] thing works out. I've been
to Tokyo 41 times so I-- I'll show you my--
I can't. But I know it pretty well. -Right. -Not
knowing much about it. But they're pretty excited and they
have the Olympics coming up and so we'll-- but in
the meantime you have a free pass. -Bill, one of
the hallmarks of your approach that you've written about us
that, you know, you've looked from where you're seeing inefficiencies
in the market that you are taking advantage of that
stand most from, you know, human behavior. I mean from
institutional investors and individual investors. Where you're seeing the biggest
inefficiencies on the market right now? -We touched on earlier
the asset allocation on individuals and institution is extra ordinarily
conservative this far into a bull market with an economic--
current economic situation, economic outlook being quite positive. So the
lingering effects, the fear that was engendered and the fear
of loss was engendered by the 2008 collapse is still
with us. Michael Goldstein, one of our-- one of the
better quantitative people, one of the best quantitative analyst out
there said that the public as information-centric and volatility phobic
to a manic degree, meaning that they're worried about the
next lose item that might caused their-- whatever they own
to get down a little bit. -Right. -And I think
that's the biggest inefficiency in the market today-- and again,
we're talking earlier, you know, the hedge fund business back
in the old days when we were younger was, you
know, people like Mike Steinhardt and George Soros and Stanley
Druckenmiller-- and their job was to make money. And now
the job of the hedge fund is not to lose
money. -Right. -And the institution is what-- -It's the hedge.
Right. -They want low volatility and they don't want to
take much risk so the hedge funds ended up 30
percent in the market. They're up five or six or
seven. And so I think that's again a very important
change in the way that institutions are behaving, individuals are
behaving. And so I think it opens up an opportunity,
you know for people to actually trying to make money.
Our fund was up 68 percent last year not because
we did something wild and crazy. We were just right
down in the middle of the fairway looking at really
cheap stocks. So I think that's the thing which is
unusual, is that you can get at least you could
have got in the last couple of years really good
results by doing nothing terribly outside of the consensus. -I
need to ask you one investment for long-term [unk] portfolio.
Ed Hyman, what would you have us all on some
of? -Amazon. -Amazon. And the reason is-- -I think this
tech thing is really a big deal. There are two
billion people on the internet today and four years it
will be four billion people, I think globally. And I'm
reading the book by Bezos, about Bezos on Amazon right
now and I just got a feeling-- -It's a great
book even though Jeff really doesn't like that book so
I can see what-- but I'm reading this book and
then, you know, the presents didn't come to Christmas. -Right.
And-- -This thing is really taken off. -Okay. And one
minute, Bill, what's your one investment for long term [unk]
portfolio? -Well, I wouldn't do one if I have to
do one I'll only do one any time. But so,
you know, housing, financials, and airlines would be three things
that having their portfolio. -Okay. -We talk about housing, financials,
I mean Citibank reached below tangible but they're one of
the great franchises in the world. [unk] is good for
banks. The regulatory environment, we kinda know what that is,
the banks started out the year strong. Airlines have consolidated.
They had a great year last year. Delta was the
leader but United Airlines has the same rough of revenues
as we on Delta United and-- -Okay. -American. But as
the same rough revenues as Delta does. But Delta has
got a 10 billion more market cap because United has
1,400 more employees and 500 more planes. They will get
that rationalized over the next several years. We think there's
a lot of more money to make in the airlines.